The Centre has frontloaded its market borrowing for FY21 and will wrap up the exercise by January 29, 2021, around the same time as in FY20, Bajaj said.
The government had budgeted disinvestment proceeds of Rs 2.1 lakh crore for FY21.
The Centre on Wednesday stuck to its enhanced gross market borrowing target of Rs 12 lakh crore for FY21, brightening the chances of its budgetary expenditure for the year being reined in at the estimated level, even amid anticipations of a second tranche of fiscal stimulus.
The budgetary cost of stimuli — already announced and the tranche likely to be unveiled in November — may be met solely through ‘reprioritisation’, or the curbing of expenditure under select other heads.
Announcing the calendar for the second half of this fiscal, economic affairs secretary Tarun Bajaj said the Centre will borrow Rs 4.34 lakh crore, or about 34% of the full-year target. It has factored in potential stimulus requirement and lower-than-expected disinvestment revenues in the borrowing plan. Even “some surprises” can also be accommodated, Bajaj added.
A substantial shortfall in tax revenue was acknowledged earlier. The government had budgeted disinvestment proceeds of Rs 2.1 lakh crore for FY21.
The government has already borrowed Rs 7.66 lakh crore from the market in H1, including Rs 68,000 crore through a green-shoe option, at a weighted average yield of 5.82%, the lowest rate in 15 years.
Bajaj expected borrowing cost to remain around the same level in the second half as well, as he sought to assuage fears over any flare-up in yield.
FE had on Monday reported that the government could retain its full-year borrowing target this week or, at best, resort to only minor tinkering. Nevertheless, a substantial change to the H2 borrowing plan could be effected only when the government reassesses its finances for the revised estimates, analysts have said.
The Central government had budgeted to borrow Rs 7.80 lakh crore in FY21 but was forced to raise it by as much as 54% in May, as the Covid-19 pandemic and a consequent pan-India lockdown badly hit its revenue collections, amid calls for relief packages.
The decision to stick to the earlier plan could prevent, for now, a flare-up in yield on benchmark 10-year G-secs, which has remained marginally higher than 6% for over a month now. The yield settled at 6.01% on Wednesday, a tad lower than the previous close of 6.04%.
The revenue mop-up has improved after lockdown curbs were lifted and the government will manage some savings through an ongoing expenditure reprioritisation plan, the secretary said, explaining the reason for retaining the full-year target now. The Centre has imposed 20-40% budgetary spending curbs on many departments for the first nine months of FY21. This could generate a saving of about Rs 4 lakh crore, according to an FE analysis.
While the government has taken into account lower realisation from the sell-off exercise in FY21, “we would keep up the pressure” on the disinvestment department to realise the budgetted target, Bajaj said.
The Centre has frontloaded its market borrowing for FY21 and will wrap up the exercise by January 29, 2021, around the same time as in FY20, Bajaj said. This will enable state governments and private players to borrow more in the second half of this fiscal.
The government will borrow in 16 tranches of Rs 27,000-28,000 crore each in H2. The average tenure of the bonds will remain unchanged at 14.78 years during the second half. It will borrow Rs 24,000 crore through securities having a tenure of two years and the maximum amount of borrowing (Rs 96,000 crore) will be through 10-year bonds.
The Ways and Means Advances (WMA) limit, which was raised to Rs 2 lakh crore between April and September to enable the central government to borrow a greater amount from the RBI to bridge a temporary cash crunch during the pandemic, will also be trimmed to Rs 1.25 lakh crore in the second half of this fiscal.
With net tax revenues declining 30% on year in April-August (the budgeted growth was 21% in FY21 over the actual of FY20), some analysts see fiscal deficit even doubling from the budgeted target of Rs 8 lakh crore. The April-August fiscal deficit has already touched 109% of the full-year target.
The extra budgetary cost of fiscal stimulus announced so far is roughly Rs 3 lakh crore; the actual spending could prove to be less. The expenditure curbs being exercised could also result in savings to the tune of Rs 4 lakh crore.
Mindful of its fragile fiscal position, the government of late put a leash on certain spending. Its expenditure in August dropped 15% on year, compared with a 6% rise in July and the budgeted spending growth of 13.2% for the whole of FY21.